Reference no: EM13924783
This problem is from Federal income taxation of Corporations and Shareholder 7th edition (James S. Eustice) 5A (9)
The stock of X is owned equally by two shareholders: Y (an individual with a stock basis of $100) and A (an individual with stock basis of $40). X uses the accrual method, A and Y use the cash method, and all use the calendar year. (Assume 1059 does not apply). Use a 34% corporate tax rate in this problem. X has always been an S corporation. During the current year, X accrued income and expenses as follows:
Gross income from Business $500
Dividends on AT&T stock (consider &243) $100
Interest on municipal bonds (&103) 100
Capital gain 100
Total $800
Deductible &162(a)(1) business expense 430
Noncaptial expenses not deductible under &162(e) 90
Capital losses (see &1211 (a) 146
Total 66
Net $134
Suppose that Y is an individual and that X has always been an S Corporation.
a) Alternatively, X has E&P of 100 from years before it wa an S corporation and nothing in its AAA from prior S years. The $100 is capital gain from the sale of stock held for investment and the $500 gross income from businesses is also gross receipts from business. Assume the stock for investment was acquired whil an S corporation. Assume other facts remaining the same including the $100 distribution to each shareholder. Discuss the following, showeing calculation where appropriate. (1) 1374 tax, (2) 1375 tax (calculate excess passive income) and consequences, and (3) AAA and E&P and basis.
For the answer can you please explain how do you get the result.
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